Each fund manager or fund advisor has been invited to answer a series of questions about their own funds as well as the market in general.
The team at Optylon Krea sat down with us to answer our questions about NEXT CapitalFund.
Could you please start by giving us some background about yourself and the team working on NEXT Capital Fund?
he team is composed of Stag Fund Management as the fund manager and Optylon Krea as the fund advisor. Stag is part of the wealth management company Dixcart, based in the UK, with international exposure, operating in the market for more than 45 years.
Optylon Krea is an investment management and real estate development company that caters to the needs of international Golden Visa investors. With €1.7 Billion managed to date, our team has vast experience navigating today’s complicated business world. We advised the first.
Golden Visa eligible fund when SEF (immigration office) announced the VC funds were admissible for Golden Visa investments in 2018. All Funds combined, we advised more than 300 investors from 25 different countries for a value of €100 million, making us the pioneer and the market leader in this investment segment in Portugal.
We know that Optylon Krea has been active in the Portuguese real estate market for some time as well as having experience with other Golden Visa-eligible funds. Why did you decide to create the NEXT Capital Fund?
From the past 5 years, and just after the Portuguese government’s decision to include the venture capital fund investment to be eligible for Golden Visa, we have been working with fund managers to design the best solution to meet GV investors’ criteria. With vast experience and have developed a good network over the years; we consider ourselves to be the market leader with more than 300 investors from 25 countries all funds combined. Speaking about NEXT, which is the 3rd fund OK is advising, has a very similar investment strategy of NEST (closed in Jan 2021) breaking the record by being the largest GV eligible fund in the market. So we fine-tuned our strategy to make it more diversified and benefit from the post-Covid world.
NEXT Capital Fund will invest in prime commercial assets including but not limited to high-street retail, logistics, and specialised offices such as health centers and co-working spaces. NEXT’s investment strategy will target opportunistic investments and will take advantage of the expected post-Covid rebound in Portugal, mainly Lisbon, as well as in other European cities such as Madrid, Barcelona, Milan, Athens & Istanbul with excellent investment and growth potential.
Nowadays, and given the fact that direct property investment for GV in Portugal will suffer from some restrictions, namely on the exclusion of acquiring a residential unit in the metropolitan areas, we believe that our view back in 2017 will gain even more strength.
Has the management/advisory team invested in NEXT Capital Fund and, if so why? If not, why not?
Optylon Krea invested € 50 000 in Next. Despite this, Optylon Krea is invested in the development projects in the investment pipeline.
NEXT Capital Fund’s chosen investment profile is Prime, yielding retail assets. This appears to be a very specific focus. Could you please explain your thought process behind this decision?
Our first focus is to make a lucrative investment both for the investors and us we’ve checked the market and saw the high street retail is very undervalued when compared to prime residential (in the same building) and other comparable cities we wanted to focus on this asset type to give an example; Lisbon prime retail figures are still lower than secondary cities like Marseille and Rotterdam.
On a price per sqm basis, our research suggests that Lisbon prime retail trades at more than 60% discount, compared to the average price per sqm in Europe. Figures for office and logistic and roughly the same, providing the support that this strategy within the fund’s term will prove to be very profitable.
How would you describe NEXT Capital Fund’s risk profile: Conservative, Moderate, or Ambitious?
We believe that NEXT CAPITAL fund presents a moderate approach towards risk.
The Golden Visa rules state that a qualifying investment must be held for just five years but NEXT Capital Fund’s lifetime runs for longer. Could you please explain the fund’s lifetime including the launch date and subscription period?
The fund was approved in Dec 2020, Next’s duration is 6+1+1 year meaning on Dec 2026 there will be a general assembly and the ones who have completed their 5 years of residency card can exit the fund and the ones who need to stay invested to complete their last 1 or 2 year can stay invested till Dec 2028
On average, how long does it take to onboard a Golden Visa investor into NEXT Capital Fund and what are the main obstacles in the onboarding process?
This can vary from investor to investor. Nevertheless, and assuming that everything is done promptly and accordingly, 4 to 6 weeks is the average timeline. On the fund subscription part Optylon Krea and Stag iWork’s together to onboard a client as soon as possible due to the dedication and know-how on the process however the bank account opening process can vary from one to another.
In general, some Golden Visa investors are cautious because of the funds’ lock-in periods. How do you plan to deal with Golden Visa investors who may wish to exit NEXT Capital Fund before its full lifetime?
If the investor withdraws from Golden Visa and exits within the lock-in period if there is liquidity available in the fund, he may exit the fund or we need to find an investor(s) to buy the subscription units. So it is possible and there are no penalties however it can take a bit of time.
It seems that most Golden Visa funds in Portugal are focused on real estate. What
distinguishes NEXT Capital Fund from the others?
The strategy of the fund aligned with the target amount and the experience of the team will be the main differentiating factors that other funds will not meet. The strategy of enjoying the rebound and maturation of the targeted sectors combined with the 50 plus millions of euros that the fund is raising, allows the best conditions to a stable and diversified Golden Visa process.
Many of those considering the Golden Visa are currently comparing funds vs real estate. What advice can you offer to help investors make the right decision for them?
This will always depend on the risk profile of the investor. Nevertheless, numbers do favor the found route. It is more efficient, less costly, and more diversified. We understand that buying a property allows investors to depend only on themselves, nevertheless choosing a unit in the right place, managing the property to allow it to generate attractive income can be time-consuming and time is money for everyone! Additionally, it’s the most tax-efficient way since you avoid paying municipal taxes (IMI) and property purchases taxes such as (IMT) and Stamp Duty that can reach approximately € 40k on a €500k real estate purchase as well as not having income tax nor capital gain tax unlike the direct incomes from property.
Considering that we’re entering the final months before the Jan 2022 Golden Visa rule changes, another possible benefit that may arise for fund investors who miss the application deadline is that, rather than being stuck with a property that doesn’t qualify under the new rules, they could simply invest a further €150,000 into a fund and still qualify under the new rules. It’s not an ideal scenario but at least it gives some flexibility compared to investing directly into real estate.
For people who are unfamiliar with investing in funds and may even be nervous about learning, what advice would you like to give them?
The best advice that we can offer is to always perform due diligence on the track record of the most relevant parties related to the fund. Who are they? Do they have experience? Can they present evidence of their track record?
Additionally, you should be aware of the fund’s strategy and the tools adopted to mitigate the risk. What methods will be used? Where will it be invested? What data is supporting the strategy and why do you believe that this strategy will perform? The last, but not least advice is the amount that is being raised by the fund. Even if you are unfamiliar with this route, if you follow the grand majority of investors you will have one question answered: are they all wrong? We don’t believe so.
Considering the incoming Golden Visa rule changes on January 1st 2022, what advice would you give to investors who are currently looking into the program?
The first thing is to have the most experienced advisers. Not only in terms of fund management/advisement but also by securing the best intermediates to help you on the process. On the legal counsel, we believe that you should prefer law firms that are used to working with the Portuguese Golden Visa program. They have established routines that allow you to be timely and efficient during the application.
The second is to be efficient and fast on the onboarding process. Fill out the required forms, perform the required tasks in a timely manner to secure that you meet the € 350k deadlines. The clock is ticking and the €350k window will close at the end of 2021.
What is your outlook for Portugal from both an investment and lifestyle perspective over the coming years?
Portugal is being discovered by the world in the past few years and this is supporting our economy. On the investment side, there is still a lot to do, but companies are more sophisticated and ready to deal with the upcoming opportunities that are being presented to the market. From a lifestyle perspective, Portugal is one of the best countries in the world in terms of quality of life and peace and this should support a very attractive investment environment.